Stores Can Survive Onslaught Of Net
July 18, 1999
by Irwin Stelzer
The Sunday Times (London)
18 July 1999
The Internet, we are told by a new breed of techies, has irrevocably changed the nature of retailing; existing firms must adapt or die. No it hasn't, we are also told by usually older observers of consumer behaviour: the old virtues of service and fair price-quality combinations will still separate winners from losers, and established firms are well endowed with those virtues. Both are right, almost.
Last year, Americans bought $48 billion in goods and services over the Internet, according to Michael Moynihan of the Center for Strategic and International Studies. That's a lot of sales -- until you put those figures in perspective. This might help: in that same year, one retailer, Wal-Mart, racked up sales figures that came to three times all of the sales on the Internet.
Of course, it isn't the present that concerns Internet enthusiasts. Moynihan expects sales on the Internet in America to quintuple next year, and Goldman Sachs is predicting that 15%-to-20% of the global retail market may eventually be accounted for by purchases made online.
What this means for existing retailers is unclear. For one thing, new means of distribution -- and that is what "etailing", as it has come to be called, really is -- do not always thrive by taking business away from the old. They create new markets. When television made its appearance as a distributor of entertainment, many predicted the death of radio and of theatre exhibition of films. In the event, both are thriving. When large department stores came on the retailing scene, many predicted the death of the boutique. In the event, well-run versions of both are thriving.
Then, too, existing retailers are learning the e-commerce game, although more slowly in Great Britain than in the US. This newspaper reported last month that Verdict, the retail consultancy, estimates that only 14 of Britain's 100 top retailers accept transactions on the Internet, compared with 43 out of 100 in America.
Finally, traditional retailers rarely stand still and await their death at the hands of newcomers. Oxford Street merchants have banded together to study how they might adapt their combined 5 million square feet of retail space better to serve the 200 million customers who pass through their shops annually, leaving 5 billion behind them.
So much for the numbers. The overriding fact is that no one can predict with any confidence the shape of retailing, even in the near future -- except to say that it will change with great regularity. Before the ink was dry on stories predicting that the superstores would put small retailers out of business, Wal-Mart began experimenting with stores only one-fifth as large as its biggest outlets, and Home Depot (annual sales, $30 billion) opened the first of four stores that will be a mere one-third as large as its famed megastores.
And just when stories of etailing began to dominate the business press, Bluewater Park, a 1.5 million square foot shopping mall near Dartford in Kent began to attract shoppers in droves. This combination of giant retailers such as Marks & Spencer and trendy boutiques, supplanted by a variety of restaurants and coffee shops, should be on the must-list of anyone preparing to concede that the "r" will soon be dropped from "retailing". For it shows that the solitary experience of using the Internet does not satisfy the needs of those for whom shopping is a social experience as well as a household chore.
On my visit there I couldn't help noticing that many of the shopping parties included entire families -- mom, pop, teenagers and/or infants in prams. And many had come to meet friends, have a sandwich, stroll in an environment immune from the weather, chat and buy. Much like what one sees in shopping malls in America. It is this social experience that etailers can't yet mattch.
Although some try. One of the reasons for the success of that darling of investors, Amazon.com -- if rolling up ever-larger losses can be counted a success -- is that its webstore provides a means for book-buyers to chat with one another, to exchange views on new books, and to post their own reviews if they are so inclined. Rather like the daily occurrences in the better local bookshops, such as London's fabled Sandoe book shop, Washington's Chapters, and Tillman Place Bookshop in San Francisco.
What is making life difficult and anxiety-ridden for retailers, be they committed to large superstores, smaller specialty ones, or the Internet, is not that one form of distribution is destined to sweep the field. It is that all forms, to varying degrees, will do well if properly managed. The trick will be to decide which form or forms presents the best match with the promotional and managerial talents of the firm.
Marks & Spencer is not in trouble because of the Internet; its problems stem not from the new medium, but from its failure to keep pace with the changing tastes of its customers, and with the new importance of price in the retail mix. Sainsbury's did not lose ground because of the Internet; it ceded market share to other conventional supermarkets that did a better job of pricing and of building customer loyalty. On the other hand, several small bookstores in America are indeed being driven to the wall by new forms of distribution, as they find themselves unable to keep pace with the superstores of retailers Barnes & Noble and Borders, or cope with etailer Amazon.com.
In short, customers now have more choices than ever. My guess is that in the long run they will keep it that way, sharing their patronage among etailers and retailers, boutiques and superstores, depending on the product, the efficiency of the particular seeker-after-their business, and their mood of the moment. That means that anyone trying to part them from their money will never be certain that his success in doing so at any time assures his continued, future prosperity. Which is how it should be in a competitive economy in which the consumer is king -- and queen.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.